Kansas lawmakers delay vote on internet sales tax; talk emerges of a new income tax cut

The Kansas Statehouse in Topeka.

? Republican leaders in the Kansas House on Friday abruptly called off a debate that had been scheduled on a bill that would impose retail sales taxes on purchases made over the internet through online retailers.

House Speaker Ron Ryckman Jr. did not offer a specific reason for that decision, but he said in an interview after the House session that the bill may come up for debate next week.

Others, however, suggested that multiple amendments had been prepared, which could have kept the House in session for hours on a Friday afternoon.

“I think they realized it was going to be a long day,” Rep. John Whitmer, R-Wichita, said in an interview, adding that he had three amendments he planned to offer dealing with various other sales tax-related issues.

In addition, Democrats were expected to offer amendments, including one to reduce the state sales tax on food.

Still others suggested House Republicans became nervous Friday after the Senate tax committee advanced a bill Thursday evening that would result in significant income tax cuts for most Kansans by changing state tax law so that Kansas would not see a windfall as a result of recently enacted federal tax law changes.

They suggested that action made it look like House and Senate Republicans were not on the same page regarding state tax policy, with senators preparing to cut taxes and House Republicans trying to raise other taxes.

“It may,” said House Taxation Committee Chairman Steven Johnson, R-Assaria, who added that he was not told in advance that the sales tax bill was being pulled from the debate calendar. “To me, the bottom line is what’s the policy that will stand the test of time?”

House Bill 2756 is modeled after legislation in other states that have been looking for ways to capture sales tax revenues on transactions that currently escape taxes.

Under a 1992 U.S. Supreme Court decision, states can only tax online sales if the retailer has a physical presence, or “nexus” in the state.

That 1992 decision, however, is currently under challenge at the Supreme Court, where the state of South Dakota is asking the justices to reverse the ruling in light of the significant share of the retail market that online retailers have gained since the early days of the World Wide Web.

The House bill would redefine a physical “nexus” to include smartphone or tablet applications that physically reside on devices in Kansas, as well as “cookies” that websites leave on a user’s browser to record their username, password and other information.

That would effectively make all online retailers whose sites are accessible to Kansas internet users subject to Kansas sales tax, presumably even if the Supreme Court keeps the “nexus” rule in place.

State revenue officials estimated the bill could bring in an additional $78 million a year in sales tax revenue for the state.

But late Thursday, the Senate tax committee advanced legislation that would move state tax policy in an entirely different direction.

That committee worked on a bill that was aimed at preventing the state from realizing a windfall as a result of recent federal tax changes. But along the way, the committee also added provisions that would effectively cut income taxes across the board.

Although details of the Senate plan were not immediately available Friday, Johnson said his committee has considered similar measures, and they all came with a hefty price tag.

The windfall, he said, results from the fact the federal law will result in many more people taking the standard deduction instead of itemizing because it both raises the standard deduction and limits how much people can claim from itemized deductions.

Without changing the state tax code, Johnson said, those changes will result in fewer people itemizing deductions on their Kansas returns, which would result in them paying higher state income taxes.

In addition, he said, the federal law slashes federal taxes on overseas assets held by multinational corporations when they are moved back, or “repatriated” to the United States, a provision designed as an incentive for corporations to reinvest in their domestic operations.

Johnson said that could result in significant amounts of money being moved back to the United States, including Kansas, which would result in a windfall to the state unless Kansas changes the way it taxes that income as well.

Bills in both the House and Senate would change state law so that people could continue claiming itemized deductions for things like home mortgage interest and medical expenses that they may not be able to claim on their federal forms, something Johnson said could cost the state around $90 million a year.

In addition, he said, changing the way Kansas treats foreign assets repatriated to the United States to be more in line with the new federal law could cost the state around $68 million a year.

Next week is the final week for lawmakers to consider most legislation other than tax and spending bills, or bills vetoed by the governor. But Johnson said he is anxious to get the internet sales tax bill through the House as quickly as possible because the Senate has not yet considered it.

Lawmakers are scheduled to adjourn the regular part of the 2018 session on Friday, April 6. They will then take a three-week break and return for the final “wrap-up” session Thursday, April 26.